What are PE and VC Firms Missing?

There’s a gap in today’s due diligence process for PE and VC firms. And it’s a huge one, a gap that could mean the success or failure of the investment. Sure, most of these firms have thorough processes for due diligence on systems and financials, but what about the prospective company’s most important asset…their people?

What most PE and VC firms miss today is the critical component that drives a business forward – a due diligence on culture. If the hypothesis of engaged employees equals engaged customers which ultimately equals revenue is true (and we wholeheartedly believe it is) then a due diligence on people is arguably just as important as the standard due diligence in practice today. But what is culture and how do you measure it?

Let’s first define what culture isn’t. It’s not pool tables and open beer taps nor is it unlimited PTO and company paid health insurance benefits. Yes, those contribute to culture and are good for winning the war to attract and retain talent. But, these kinds of incentives drive very little engagement or solve core business problems. Culture is a more holistic view of the employee experience – how employees perceive and interpret the company’s intentions – from day-to-day interactions to 1:1s, to company-wide townhalls and every interaction in between.

Culture due diligence combines an analysis of your people processes and qualitative voice of team interviews to give you a complete culture picture from an employee experience and engagement standpoint. A quantitative baseline also supports the voice of team assessment and provides recommendations tailored to your people insights. The usefulness of these measures seems pretty clear to me after partnering with both PE and VC backed companies to build their teams and processes. The right firms recognize that culture isn’t some fluffy concept that encompasses free gym memberships and bring your pet to work day. Culture is a strategic imperative that can make or break an investment.

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